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To understand a series LLC, the first step is to understand the limited liability company (LLC) structure.
LLC’s are hybrid business structures that combine the characteristics of corporations and a partnership/sole-proprietor. Traditional LLCs are recognized in every state and formed under the state statute.
An important characteristic is that owners (members) of an LLC aren’t personally responsible for the business liabilities. It’s this liability shield and ease of formation that makes them more popular than forming a corporation.
Series LLCs consist of a parent or master LLC with a collection of series of cells that operate in a tiered structure beneath it.
Each series may comprise one or more property investment or interest that has their separate assets. The series maintains its own members (owners) as well as debts.
As a public benefit corporation, the key to a series LLC is organization and separation.
The organizational format of the series LLC helps to mitigate risk for all the series involved. Each series is like a separate entity; a box sat inside the large box that forms the LLC with individual liabilities, members, public benefits, assets and can’t negatively impact or touch the profits the LLC as a whole obtains even if it undergoes hard times.
It’s worth noting, choosing to use a series LLC should be carefully considered while weighing all the pros and cons.
Depending on the state, horizontal or vertical protection may be available. A series would also only be legally allowed to pursue its series’s assets and not assets associated with the master LLC.
If a series LLC is prosecuted outside of the state it has been formed in, it could be treated as simply one traditional LLC or multiple entities.
As mentioned in the previous section, a Series LLC must be state registered or belonging to a state that allows series LLCs from other states to do business in their state.
California does not allow series LLCs formation in the state, but the state does allow a business to form the Series LLC in another state. A company registering a serial LLC must register with the California Secretary of State before doing business in California.
The states and territories that allow Series LLC formation are:
The formation of a series LLC is much the same as a traditional LLC.
Once you have ensured your state allows the formation of series LLCs, you’ll need to complete a few steps to set up everything, including paying the applicable fines. Each state has slightly different filing rules and fees, so contact your local registered agent or private attorney for specific details about setting up a series LLC.
Step 1: Name your series LLC. Ensure the master or umbrella LLC has a different name from any of the series entities. Using clear, repetitive naming conventions can help differentiate if you have multiple series.
Step 2: Choose and maintain a registered agent to file the paperwork for you. Visit the Secretary of the State’s website for your state for details about forming a series LLC.
*The Secretary of the State website will also have the necessary information to ensure nothing is omitted for your particular area.
Step 3: File the Article of Organization for the series LLC. Ensure the details in the certificate of formation include an operating agreement that provides unlimited segregation within the LLC for the individual series.
Step 4: File LLC annual reports.
A master LLC contains all the series that make up a series LLC. A master LLS is also known as the “umbrella” LLC.
A series LLC is a regular limited liability company or partnership with a series of properties or interests beneath it while Restricted LLCs can only be formed in Nevada and are not used for doing business. Instead, they are used as a vehicle for transferring assets within a family.
Yes, a series LLC can be used for real estate investments and offers several benefits. It offers reduced liability for investments placed in separate series. It can minimize expenses associated with the separation of investments as separate series, which is easier and less costly than traditional LLCs.
The Incorporation Academy is run by a group of entrepreneurs who know the difficulties of starting and running a business. We are dedicated to helping businesses get started correctly and run more efficiently.